A fruit grower notices that a neighbouring beekeeper's hives have increased apple yields. The beekeeper receives income from honey, but does not receive any...
Question 1 Report
A fruit grower notices that a neighbouring beekeeper's hives have increased apple yields. The beekeeper receives income from honey, but does not receive any payment from the grower for pollination.
(a) Which type of externality is present? [1]
(b) Explain why the number of hives may be lower than the socially efficient level. [1]
Answer Details
(a) This is a positive production externality [1]. The beekeeper’s production activity, keeping hives, benefits the fruit grower through pollination and higher apple yields.
(b) The beekeeper considers private income from honey but not the external benefit received by the fruit grower, so the full social benefit is not included in the decision. Consequently, too few hives may be kept compared with the socially efficient level [1].
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